Asian Operators Expanding in Africa

State-owned Vietnamese telecom company Viettel is considering opportunities in Ethiopia, after the government announced in June its intention to liberalize key economic sectors, including telecom, according to a news report. Currently the telecom sector is a state monopoly.
 
The plan is still in its early stages, but scenarios outlined by the authorities include the sale of a minority stake in state-owned Ethio Telecom, the granting of licenses to new operators or a combination of both. The official said even if government decides only to sell a stake in Ethio Telecom, which has over 60 million mobile subscribers, Viettel may still be interested.
 
Viettel currently operates or holds licenses in African markets including Mozambique, Burundi, Cameroon and Tanzania. Other foreign operators have expressed interest in entering the Ethiopian market, including MTN of South Africa and France-based Orange.
 
Another Asian operator, China Unicom, reportedly also wishes to increase its African footprint, focusing on connectivity and ICT services in South Africa. Unicom South Africa will serve Chinese and “other Asian enterprises” that have branches in Africa, as well as African enterprises that have branches overseas. CEO Dennis Meng said the strategy is to leverage its “extensive global network coverage and professional experience” as well as continued local investment and qualified service to secure its footprint in South Africa.
 
This pair of moves strikes us as interesting because they underscore the fact that Africa is an important new frontier in the increasingly globalized mobile telecom market. Sub-Saharan Africa is a developing and largely “mobile-first” region, in which a very large proportion of communications and financial transactions take pace via mobile devices. As such, it is a very desirable field for aggressive international operators to expand into.
 
Viettel, Vietnam’s military-owned operator, has been very focused over the past several years on expansion far from its own region, in South America and Africa. In Ethiopia, Viettel has potentially located, so to speak, the ultimate in virgin territory, since the country’s telecom market is at present a monopoly. To become an operator there would give Viettel first-mover advantage in a market that is opening up, and that would afford it huge potential revenue opportunities. And even if the Ethiopian government does not give Viettel a license but only sell it a stake in Ethio Telecom, there is still opportunity for the Vietnamese operator to make money in Ethiopia and put itself in a position to possibly start its own independent venture later on.
 
As for China Unicom, while South Africa is a far more developed and competitive market than Ethiopia, establishing a presence there will give the Chinese operator a beachhead from which to launch ventures throughout the continent. In particular, this venture appears to be oriented toward business operations rather than consumer, with cloud services in a particular area of concentration. This will help Unicom serve the needs of Chinese enterprise clients doing business in South Africa and elsewhere in Africa.

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German States Support Frequency Auction

The German Chamber of States supports the auction of 700 MHz frequencies and the switch to DVB-T2, according to a report. Spectrum currently used by broadcasters will be assigned to mobile operators to improve the broadband supply in rural areas. In order to vacate the frequencies, terrestrial television under the DVB-T standard is due to be replaced with its more efficient successor DVB-T2. Terrestrial television viewers will have to get new DVB-T2-ready set-top boxes, which are not to be launched on the market before 2016. The switch is planned to start in 2017. In response to the project, the German Federal Council—which represents the 16 states at the federal level—is demanding that the government “ensure access to a sufficient frequency range for public authorities and organizations that perform security tasks.” The state representatives pointed out that mobile aeronautical service could cause interference with the targeted spectrum and should therefore be removed.

The development of mobile infrastructure is a critical objective in all telecom markets now. Emerging economies need to make more spectrum available to meet newly expanding demand for more and higher-speed service, while often in developed economies like that of Germany, where data consumption is already very high, more spectrum needs to be made available for mobile use. This is especially important in view of the ongoing expansion of LTE and its successor technologies. While building out infrastructure is ideal and is certainly the long-term goal, in the shorter term vacating frequencies may be necessary, and it can cause conflicts. In Germany, there is concern that making the 700 MHz spectrum available to MNOs could interfere with its use by security services.

One way to deal with the issue of spectrum overlap and dueling priorities is to phase out older technologies. For example, we reported a year ago that the Peruvian government was beginning a process to replace cordless landline phones, which use a frequency that was being given to a new entrant into the mobile market, Viettel. In Germany, one solution is to phase out an older digital TV standard and replace it with a new one that does not interfere with mobile networks. By making the process gradual (to be completed by 2017), the German authorities will be treating consumers better than the corresponding authorities in Peru, who announced that cordless phones would abruptly become unusable as soon as Viettel’s service launched.

The above item appeared in recent issue of The Tarifica Alert, a weekly resource that analyzes noteworthy developments in the telecoms industry from around the world. To access all of the latest articles and issues or to speak with the research team: http://www.tarifica.com/contactus.aspx

Viettel Announces US $1 Billion 3G Investment in Tanzania

During a visit from Tanzanian president Jakaya Mrisho Kikwete to its Vietnamese headquarters, multinational operator Viettel committed to investing US $1 billion to build a 3G network in Tanzania. Viettel won a license to operate in Tanzania in early October, and one of the conditions was connecting the country’s expansive rural areas with mobile service. On awarding the license, Tanzanian deputy communication, science and technology minster January Makamba stated, “They will roll out broadband through fibre-optic cable to rural Tanzania.”  In announcing this sizable investment so soon after winning the license, Viettel appears to be preparing to make good on this commitment.

The strategy stands in contrast to the path Viettel pursued when it expanded into Peru, where a significant amount of time elapsed between acquiring the license and rolling out the network infrastructure. Viettel’s urgency is likely driven by the crowding of the Tanzanian market—there are already four sizable players, all of which are owned in part by major international telecom players—Bharti Airtel, Tigo (part of Millicom), Vodacom Tanzania and Zantel (part of Etisalat), as well as three smaller operators. Even given this volume of competition, there are still significant opportunities in Tanzania; only 64 percent of the country’s 49.25 million citizens have mobile service. Given the rapid uptake of mobile service in developing economies, however, it is unlikely that the penetration rate will stay this low for long.

In the future, there will likely come a point where some market consolidation is needed—we have seen numerous examples of the unsustainability of markets with five operators—however, with many Tanzanians still unconnected and significant opportunities existing to upsell others to higher-cost service packages, this type of M&A activity does not appear imminent. While Viettel may be getting a late start compared to its competition, it would be foolish to count it out, since the company has significant experience building and marketing mobile service in emerging economies from its operations in eight other markets across Southeast Asia, Africa and Latin America.

“With telcos in Europe and North America appearing locked in a constant cycle of increasing infrastructure costs and declining ARPU, companies like Viettel and Millicom, which have significant and expanding operations that are exclusively in emerging markets, could be poised to become among the most important international mobile players in the near future. Not only do the countries they operate in have much more room for growth, their success in these rapidly shifting and diverse markets has required operational flexibility and institutional creativity. This cultural difference has enabled these companies to capitalize on new revenue streams—like mobile money—much faster than many of the established telecom heavyweights.”

Jamie Davella,

Research Analyst at Tarifica

The above item appeared in a recent issue of The Tarifica Alert, a weekly resource that analyzes noteworthy developments in the telecoms industry from around the world. To access all of the latest articles and issues:  http://www.tarifica.com/TarificaAlert.aspx